Econ Chap 11

trough

***This is where real GDP reaches its lowest level after falling during a recession. -unemployment and idle productive capacity are at their highest levels relative to recent years. -The time between this and the peak is the recession (both good and bad news)

Expansion

***is an upturn in the business cycle during which GDP rises -Also called recovery, is the improving economic conditions -profits improve, real GDP increases, employment rises

transfer payments

-**Is a government payment to persons not in exchange for goods or services produced. This includes Welfare, Social Security, Vet benefits, and unemployment benefits (all considered nonproductive) -Not included in GDP

Business cycle

A central concern of macroeconomics is the upswings and downswings of the economy is called the _____ ___

final goods

Are goods and services sold to the final user.

intermediate goods

Are goods and services used as inputs for the production of final goods

household consumption

C=?

the cause of the business cycle

Changes in total spending cause variations in real GDP Real GDP= C + I + G +(X - M)  Economic Growth

Business cycle

Consists of alternating periods of economic growth and contraction. -always exist in market economies

Economic Growth

Defined by economists as an increase in a nation's real GDP during an expansion. -key reasons for its growth is increases in resources, tech advances, & productivity

net exports

Exports=spending by foreigners for US domestically produced goods Imports=are the dollar amounts of US purchases and other goods produced abroad. ***The effect of a negative net exports figure is to reduce US GDP. Higher exports (X) relative to imports (M) increases GDP.

government spending

G=?

nonmarket activities

GDP only counts market transactions -excludes homemaker activities, child rearing, do-it yourself repairs. -these are excluded because it would be difficult to place a dollar value on services that people provide for themselves (laundry)

Secondhand Transactions, Transfer Payments, Stock Market Transactions, Nonmarket Activities, The Underground Economy

Government accountants calculating GDP carefully exclude these types of transactions

The underground economy

Illegal gambling, stolen cars, illegal guns, drugs, and goods are services that meet the GDP requirements. -GDP does not include unreported criminal activities and also ignores the value of production that is paid off the books.

government spending

Includes purchases by government at the federal, state, and local levels. -spends for police and education. Spends for defense, schools, highways, bridges, and government buildings.

Real GDP

Is GDP adjusted for changes in prices over time. ***Measuring the diff between changes in output and changes in the prices involves the diff between normal GDP and ____ GDP.

Nominal GDP

Is GDP measured in current prices. Grows in 3 possible ways-1. Output rises and prices remain unchanged. 2. prices rise and output is constant 3. both output and prices rise

GDP

Is the market of all final goods and services produced annually in a country. -Important because it tells a country how well its economy is doing

GDP per Capita and Quality of Life

It GDP divided by the total population. -Can be argued that GDP per capita only measures income -direct correlation with quality of life (higher GDP per cap=higher qual of life) -are generally related to the ranking in economic freedom. Countries with greater economic freedom generally have higher standards of living.

imports

M=?

peak

Temporary high point (GDP reaches its maximum)

leading indicators

The government's chief forecasting gauge for business cycles is the index of ______ _____

gross domestic product

The most widely reported measure of a nation's economic performance is ____ ______ _____

lagging indicators

These are 7 variable that change after real GDP changes. -EX: duration of unemployment

coincident indicators

These are key variables that change at the same time that real GDP changes

Stock Market Transactions

These are not new productions of goods and services, so are not counted in GDP. These represent only the exchange of certificates of ownership(stocks) or indebtedness (bonds)

leading indicators

These are the key variables that change before real GDP changes.

Investment

This does NOT mean stocks or bonds. **includes capital assets that are expected to earn profits in the future. -Consists of spending for newly produced capital goods (plants, equipment, tools, and computers) -includes products that are produced and held in inventory

recession

This is a macro setback. -also called a contraction, follows a peak **is a downturn in the business cycle during which real GDP declines. -business profits fall, unemployment increases, production capacity is underutilized.

circular flow model

This shows that exchange of money, products, and resources between businesses, households, with the government in the middle, also spending and collecting taxes.

consumption

This spending is total spending by households for durable goods, nondurable goods, and services. Durable goods=cars and appliances because these items last longer than 3 years. Nondurables=food, clothing, soap and gas Services=recreation, medical treatment, education—services spending is larger than spending for either of the other goods.

secondhand transactions

Used items were counted in GDP the year they were newly produced. GDP includes only transactions that involve newly produced goods and services

exports

X=?

The Great Recession

is the longest recession since the Great Depression(43 months) -lasted 18 months -9.7 unemployment rate

peak, recession, trough, expansion

name the 4 phases of the business cycle?